This website uses cookies to ensure you have the best experience. Learn more

Financial Crisis Essay

3376 words - 14 pages

Financial Crisis

Introduction
In recent decades, financial crises have stopped the momentum of economic development of many countries around the world. In some cases, they have destroyed almost completely different financial systems. The term financial crisis is applied broadly to a variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign ...view middle of the document...

However it still remains a challenge to understand and identify the deeper causes.
Financial crises are often preceded by asset and credit booms that eventually turn into busts. Many theories that describe the sources of financial crises have recognized the importance of asset and credit booms. However, explaining why asset price bubbles or credit booms are allowed to continue to a point where it is no longer sustainable has been challenging. We will now take a closer look on asset and credit booms and their impacts.
Asset bubbles are sharp increases in asset prices and often lead to crashes. A bubble, an extreme form of such deviation, can be defined as “the part of a grossly upward asset price movement that is unexplainable based on fundamentals.” A speculative bubble exists in the event of large, sustained overpricing of some class of assets. One factor that frequently contributes to a bubble is the presence of buyers who purchase an asset based solely on the expectation that they can later resell it at a higher price, rather than calculating the income it will generate in the future. If there is a bubble, there is also a risk of a crash in asset prices: market participants will go on buying only as long as they expect others to buy, and when many decide to sell the price will fall. However, it is difficult to predict whether an asset's price actually equals its fundamental value, so it is hard to detect bubbles reliably. Some economists insist that bubbles never or almost never occur. Well-known examples of bubbles (or purported bubbles) and crashes in stock prices and other asset prices include the Dutch tulip mania, the Wall Street Crash of 1929, the Japanese property bubble of the 1980s, the crash of the dot-com bubble in 2000–2001, and the now-deflating United States housing bubble. The 2000s sparked a real estate bubble where housing prices were increasing significantly as an asset good
Credit booms can be triggered by a wide range of factors, including shocks and structural changes in markets. Shocks may include changes in productivity, economic policies and capital flows. Rapid movements in asset and credit markets during financial crises are quite different from those normally observed. Asset and credit boom and busts differs from the movements observed over the course of a normal business cycle. An asset or credit boom usually takes place over shorter time periods and result in faster increases in the financial variables. The slope of a typical boom is two to three times larger than a regular episode, while a bust is much longer, deeper and results in a more violent downturn. Asset price busts can affect bank lending and other financial institutions’ investment decisions and in turn the real economy through two channels. First, when borrowing/lending is collateralized and the market price of collateral falls, the ability of the firm to rely on assets as collateral to retain loans or extend new credit becomes impaired. This in...

Other Essays Like Financial Crisis

The 2008 Financial Crisis Essay

1869 words - 8 pages Introduction The purpose of this report is to study Global Financial Crisis 2008.This study is inspired by the Wall street crisis and it covers why’s and after effects of the crisis. After this crisis many of the roots causes were observed like speculation, fragility of the system, greed of the managers which adversely affected the market. What is financial crisis: The term financial crisis is applied broadly to a variety of situations

Financial Crisis in Greece Essay

868 words - 4 pages FINANCIAL CRISIS IN GREECE Enter the economy of euro zone member, Greece. Once considered as a financially stable country, Greece is now on the edge of having a financial default. With a debt total amounting to an estimated $420 billion, experts say that this debt would have been bigger that the country’s economy itself and this debt is predicted to increase as time goes by because Greece spends 12% more than it gets revenues. So what’s

Ireland Financial Crisis

1209 words - 5 pages Ireland Financial Crisis Introduction of Ireland Financial Crisis 怡萱 The Impacts of the Crisis e pacts o t e C s s Relief Program  Relief Program Unified European Bonds Conclusion 婉婷 軒敏 佩宜 y •Economy Boom •Investors jump in the  markets •Real estate market  was thriving  2008 EU carried out  Low Interest Rate policy EU carried out “Low Interest Rate” policy Ireland was full of “Cheap Fund” Government tried to  Promote Real

Fashion in Financial Crisis

1348 words - 6 pages Sammy Roggeman M2A The consequences and implications of the most recent developments on the world’s fashion industry. Open any kind of magazine, turn on the television, just look outside or even in your own wallet: the financial crisis is all around us. It’s influencing everyone from high-end managers to the smallest child on the street. This trying state of the economy is changing society like never before. The fashion industry is not

Global Financial Crisis

3007 words - 13 pages university of stellenbosch | The Global Financial Crisis | John Maynard Keynes said that ‘financial speculation should be the bubbles on the stream of enterprise and productivity and not the other way around’ | | Fritz H Dausab-15161269 | 5/6/2013 | “A sound banker, alas! Is not one who foresees danger and avoids it, but one who, when he is ruined in a conventional and orthodox way along with his fellows, so that no one can really

Fair Value Accounting Under Financial Crisis

2476 words - 10 pages June 2010, Vol.6, No.6 (Serial No.61) Journal of Modern Accounting and Auditing, ISSN 1548-6583, USA Fair value accounting under financial crisis HE Cai-xia1, ZHANG Chi2 (1. School of Accounting, Zhongnan University of Economics and Law, Wuhan 430073, China; 2. School of Management, Huazhong University of Science and Technology, Wuhan 430073, China) Abstract: The recent financial crisis has led to a vigorous debate about the pros and

Bhp Billiton and the Financial Crisis

2441 words - 10 pages . (PAR, 2009 pp 5) The market for petroleum and indeed the mining industry as a whole was unsure what effect the global financial crisis would have and what action affected parties would take during the period. Regardless of the changes, such a large and important company as BHP would have to study the potential changes and start, if necessary, reformatting their financial planning/strategies and other control processes. These would have to be

Global Financial Crisis Impact and Cause

3004 words - 13 pages The Global Financial Crisis (GFC) of 2007 stemmed from a lack of regulation of the United States Financial System. The financial system comprises of financial institutions, markets, services and practices that allow for the transfer of money between savers and borrowers.1The lack of regulation triggered a liquidity shortfall in the United States’ banking system, attributed to the overvaluation of assets. In the US, sub-prime mortgages were sold

Global Financial Crisis Sample, Not Original

937 words - 4 pages for the working class has served to prop up the financial system and further enrich the ruling elite by inflating financial asset values, but has done nothing to revive the real economy. On the contrary, the fact that economic growth continues to stagnate despite vast subsidies to the banks and investment houses speaks to the fundamental and systemic character of the economic crisis. Moreover, the measures taken to avert a descent into deflation

The Chinese Trend in the Global Financial Crisis

707 words - 3 pages American supreme lending crisis which caused global financial crisis is one of the most important events after the World War Ⅱ. A lot of countries around the world are affected by the crisis,America is the most serious sufferer, and others countries which have enjoyed the flourish of Real Estate Market and consumption, such as the Britain, the Ireland, the Australia ,the Canada,are also shocked.Moreover,the Iceland is having bankrupted . Chinese

Impact of Global Financial Crisis on Air Transport

1976 words - 8 pages Final Project Part One: Impact of Global Financial Crisis on Air Transport in the U.S Embry-Riddle Aeronautical University MBAA 522 – Business Research Methods For: Dr. Barry Bauer March 15, 2015 Introduction This research paper examines the origins of the 2008/2009 world financial crisis and the impact that the crisis had on air transport in the United States of America. Although the crisis originated in the economies of North

Related Papers

Financial Crisis Essay

534 words - 3 pages Throughout the history and even today we often hear about the term financial crisis. Every day on the news we can hear about the financial crisis in some countries and how they are trying to prevent it or to get out of it. Especially about the financial crisis in Greece. So what exactly is financial crisis? There have been a lot of definition of what financial crisis is, but they all agree in one thing financial crisis appears when

Financial Crisis Essay

870 words - 4 pages Financial crisis is a term that has been used broadly to refer to a variety of situations such as a sudden loss in nominal value of some given financial assets (Nanto & Library of Congress, 2009). However, in 19th, 20th and early 21st centuries, financial crisis has been associated with the banking panics and recessions. In addition, stock market crashes and currency crises are some of the situations that have also been referred to as financial

Financial Crisis Essay

5298 words - 22 pages Introduction The World has been marked by the most major financial crisis over the past century with the last one being the 2007-2009 financial crisis which has been a painful reminder of the multifaceted nature of crises, namely: 1) Financial crises occur in all market economies, in small and large countries as well as poor and rich ones. 2) Economies can experience long crisis-free periods 3) Financial crises are sudden and

Financial Crisis Essay 1513 Words

1513 words - 7 pages Serious Downturn of Global Economy during the Last One Year Financial crisis engulfing the world economy—falling share markets, decreasing industrial growth—is our prime concern today as almost every countries of the world, every of the people of the world are somehow affected by it. Now, what has caused this major economic upheaval in the world? Observing the economic scenario of the recent past, we would get some unpleasant answer as it would